The factor endowment theory is identified as:
A) Theory that suggests that strategic intervention by governments in certain industries can enhance their odds for international success.
B) Economic theory that accounts for changes in the patterns of trade over time.
C) Proposition that nations will develop comparative advantage based on their locally abundant factors.
D) Theory that the competitive advantage of certain industries in different nations depends on four aspects that form a diamond.

Question

Quizplus · Accepted Answer

The factor endowment theory proposes that nations will develop comparative advantage based on their locally abundant factors. This means that countries with abundant natural resources, skilled labor, or capital will have a competitive edge in industries that require these factors. The theory implies that countries should specialize in producing goods and services that they can produce at a lower opportunity cost, and engage in trade to acquire goods and services that are more expensive to produce domestically. The factor endowment theory proposes that countries will specialize in and export the goods that use their abundant factors of production, leading to a comparative advantage in those industries. This theory assumes that differences in factor endowments (such as natural resources, labor, and capital) among countries will drive trade patterns.

The Factor Endowment Theory Is Identified As